Monday, July 31, 2006

Price Forecasting In Purchasing

A subscriber to PurchTips today asked my opinions on how to deal with industry-wide price increases due to buying in an inflationary market. I thought that I'd post an excerpt here so that more than one person can benefit from my advice.

My view is that purchasing should always challenge price hikes except when doing so will increase the risk to the continuity of supply.

I also feel that purchasing professionals need to have good forecasting skills to estimate where prices are going.

If increases are expected to continue, then locking in a long-term deal at today's prices is a good idea.

However, if the purchasing professional feels that prices are peaking, the last thing one would want to do is lock in a long-term deal at today's price. When prices peak and subsequently decline, a hand-to-mouth sourcing strategy works best until the prices bottom out at which time a long-term deal makes sense.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Saturday, July 29, 2006

The Purchasing "Tomatoes?"

OK, perhaps this is the oddest subject line in the history of purchasing blogs. But let me explain what I mean.

Are you familiar with the phrase "You say 'tomato' and I say 'tom-ah-to'?"

For those of you from outside the US, this is a phrase used to essentially mean "Well, we call things by different names, but that's OK."

The purchasing profession has many items that are called by different names. Here are a few of these purchasing tomatoes, but not all.

In the US, we say Requests For Proposal. Elsewhere, some people say tenders.

In the US, we say supply management. Elsewhere, some people say supplies management.

In the US, we say procurement of services. Elsewhere, some people say procurement of works.

In the US, we say purchasing department. Elsewhere, some people say purchase department.

Do you have some purchasing tomatoes to share? If so, please comment!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Wednesday, July 26, 2006

A Common Buyer Training Omission

Sometimes, buyer training organizations forget the little, tactical things that buyers need to know that make a difference. Embarrasingly, I wish that we incorporated this little tidbit into our fundamentals of purchasing online training class.

Buyers and suppliers often speak to each other in part numbers. Miscommunicate or mishear the part number and there can be big, hairy, unnecessary problems.

One little tool that I always found helpful in my buyer days was the phonetic alphabet. This is a standard way of communicating that helps ensure that "T's" aren't mistaken for "B's" and "H's" aren't mistaken for "8's."

It can also save time so you're not thinking "'P' as in, uh, well, um, 'Phish'" or something else. You can just rattle off the part number "Papa India Tango 123."

So here is the tool that we, like every other buyer training organization, forgot to include in our fundamental training...the phonetic alphabet.

Alpha
Bravo
Charlie
Delta
Echo
Foxtrot
Golf
Hotel
India
Juliet
Kilo
Lima
Mike
November
Oscar
Papa
Quebec
Romeo
Sierra
Tango
Uniform
Victor
Whiskey
Xray
Yankee
Zulu

I'm not sure why I'm having this flashback, but I hope that it helps some buyer somewhere out there!

Respectfully,
Charles Dominick, SPSM (Sierra Papa Sierra Mike)
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Tuesday, July 25, 2006

An IT Purchasing Breakthrough?

The president of our IT vendor passed along an article that mentioned a new IT purchasing standard that has been developed by General Motors and Carnegie Mellon University. Reading the article, left me a little curious: could a purchasing standard written from an IT point of view really achieve adoption among purchasing professionals?

I would love to read the standard, but...

IT IS FOUR HUNDRED AND THIRTEEN PAGES LONG!

I did some searching in the standard, and it did surprisingly seem to address things that are near and dear to purchasing's heart like procurement negotiation and supplier performance issues. Hmmm...

If you have more time than I, you can read the report here.

I'd love to hear a purchasing person's opinion on this thing!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Monday, July 24, 2006

Strategic Sourcing Plan

I hope that you have enjoyed the article, "The Strategic Sourcing Plan of Attack."

This article is a macro view of strategic sourcing - looking at all commodities and when to attack them. Of course, within any given category, you need a micro view sourcing strategy for that category. See our article "Cost Savings Ideas: EDMC Case Study" for an example of a real-world sourcing strategy used for the small package delivery category.

Gotta keep this short...

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, July 21, 2006

Next Level Purchasing Website

OK, OK. I haven't blogged in a few days. You didn't think I was giving up on blogging, did you?

There has been quite a lot of activity going on here at Next Level Purchasing. The biggest development is that we launched the new Next Level Purchasing Web site today!

I would love to hear your comments on the new design.

I loved the design when it was first decided upon but, I gotta tell you, after working with our design vendor for nearly 4 months and reviewing correction after correction, I think I'm a little numb. I can't tell whether it looks good or bad. So I need your comments!

Next week, I have some appointments with some interesting individuals within the purchasing and supply management profession. So I'm either gonna be too busy to blog or I'll have so many ideas that came out of the meetings that I'll be blogging more than ever.

Time will tell.

In any event, please let me know what you think of the new design for our site. I look forward to reading your comments!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Tuesday, July 18, 2006

Purchasing Articles Now Easier To Find

Since Next Level Purchasing started sending out its newsletter in July 2002, we've produced over 100 issues. We have all of them from edition #50 to the current issue archived at http://www.NextLevelPurchasing.com/free.html

As the archives grow, it has gotten more cumbersome to search our archives for an article on a specific topic...until now!

I've been using del.icio.us to compile a repository of links to previous editions of PurchTips. One of the many cool featues of del.icio.us is its ability to "tag" entries of links with specific keywords. So when you view the del.icio.us list of my supply chain articles, you'll see several tags on the right side. Click on a tag, such as cost-savings, and you'll see only those articles about cost savings!

I won't take up the space here to link to every topic, but here are the few categories of topics that I've tagged:

So what do you think? Will this be helpful in your purchasing research? Please comment!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Sunday, July 16, 2006

Purchasing Certification in Middle East

With all of the bad news coming out of the Middle East this week, I thought that I'd share some good news about that region.

There are several purchasing and supply management professionals from the Middle East enrolled in our purchasing classes and the SPSM Certification Program. Their countries include places like Saudi Arabia, the United Arab Emirates, Turkey, and other locations.

This week, however, we certified the first purchasing and supply management professional from Qatar. We are looking forward to many others following him in the near future.

I hope that the coming weeks will have more good, and less bad, news about the Middle East.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Saturday, July 15, 2006

Top Materials Management Consultant Earns SPSM

Because most of the individuals who have earned their SPSM Certifications are practitioners - buyers and managers employed by mid- to large-size organizations - not many have their own Web sites.

But one of the several candidates that we certified yesterday does - Miles Olsen, SPSM, a top materials management consultant.

Now, I don't know Mr. Olsen too well other than the interactions we've had during his time in the SPSM Certification Program, but his Web site clearly demonstrates that this guy knows what delivering results in the materials management world is all about!

So, if you find yourself seeking a materials management consultant, you may want to check out what Mr. Olsen can offer. We're very proud to have been his choice for helping him earn his purchasing certification.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, July 14, 2006

Fleet Procurement

I have just returned from a speaking engagement for the National Association of Fleet Administrators.

Fleet is one of the newer categories of responsibilities of procurement departments as the role of procurement becomes increasingly expanded. Like other new areas, procurement professionals will have their challenges understanding the technical aspects of fleet and synergizing with their new internal customers.

This particular engagement brought to light several stereotypes that exist about procurement professionals. Once I catch up, perhaps I'll share some insights on those stereotypes here or in a future edition of PurchTips.

Stay tuned!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Wednesday, July 12, 2006

The Purchasing Agent's 10 Commandments

In the last post, I speculated about the popularity of the article "The Purchasing Agent's 10 Commandments."

I was tracking the visits to the Web-based version of the article throughout the day and it seemed like it was going to rack up one of the highest first-day hit totals of all my purchasing articles. Then, sometime after the last time I checked yesterday, our host's statistics reset themselves. So, I don't have a real accurate measure of the popularity.

But, from what I observed, this more out-of-the-box type of article wasn't a failure. And I got a lot of positive feedback by email. So I'll think about using some more creative ideas for future editions of PurchTips.

What types of articles/topics would you like to see from PurchTips? Leave a comment and I'll be happy to consider any suggestions.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Wednesday, July 05, 2006

Purchasing Agents' Mandatory Reading

I hope that you have enjoyed the article "The Purchasing Agent's 10 Commandments."

Here at Next Level Purchasing, we track the popularity of our purchasing articles in part by the number of people who click from the email version to the Web-based version. Usually, I can predict how popular an article is going to be when I've finished it and am ready to upload it.

For example, I usually know that my negotiation articles will do well.

Sometimes, with more out-of-the-box articles like this one, it is difficult to predict. My gut feel tells me this one will be popular. Maybe I'll post a measure of how popular it was sometime next week.

And if these more creative type articles do prove to be popular, perhaps you can expect more in the future. I always welcome suggestions, so feel free to contact me.

Thanks for reading!

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Pennsylvania Minimum Wage Increase

As I was cutting my lawn several Saturdays ago, I observed a team of red-shirted individuals going from door to door and obtaining signatures on a petition. One of these individuals approached my property, spouted off a memorized blurb on his frustration with the current minimum wage, and requested my signature on a document to be forwarded to Pennsylvania legislators in the hope of pressuring them into raising the minimum wage in Pennsylvania.

I declined.

I didn’t decline because I don’t want to see the less fortunate better cope with the cost of living. I would love to see my fellow Pennsylvanians rise towards prosperity. Rather, I declined because I was appalled at the ease with which my neighbors would grant their support without hearing about or considering the consequences of a higher minimum wage in Pennsylvania.

What? There is a downside to a higher minimum wage?

You bet there is. And failing to weigh all of the benefits and consequences of a higher minimum wage may result in an economy in which more and more Pennsylvanians experience hardship.

And today, it seems, that a huge jump in Pennsylvania’s minimum wage is inevitable, awaiting only some formalities of being signed into law.

There are six consequences of a higher minimum wage that must be considered:

A Further Deterioration of Global Competitiveness. It’s no secret: America has been losing jobs to low cost countries like China and India. Instead of paying American workers minimum wage, American companies are outsourcing work to companies in low-cost countries, where workers are paid as little as 10% of what American workers make for the same job. If American wages increase, that will only make outsourcing to low-cost countries more attractive and result in more American job loss. I would rather see Pennsylvanians make minimum wage than see them unemployed.

A Deterioration of National Competitiveness. When companies seek to open a new factory, call center, or other type of operation, one of the main considerations is cost of the workforce. These companies clearly have a choice when it comes to which state to choose for their expansion. If Pennsylvania raises its minimum wage to $7.15 and West Virginia maintains its minimum wage at $5.15, which state would get stronger consideration for a company’s new jobs? A higher minimum wage would result in fewer and fewer new jobs coming to Pennsylvania.

The Attractiveness of Automation. Have you noticed the proliferation of self-checkout registers at grocery stores? Grocers compare the cost of automation versus the cost of having work performed by humans. And they select the lower cost option. If minimum wage increases, automation will be even less expensive from a relative standpoint and will replace a higher number of jobs, faster.

Interference With Federal Monetary Policy. The nation’s economy has been relatively healthy for quite some time. Even the recession that ensued around the time of 9/11 – arguably the most devastating event in American history – was short and less than totally devastating. The reason behind this stability is the excellent performance of the Federal Reserve Bank in leading the nation’s monetary policy. The Fed’s expert decisions have, among other things, kept inflation in check, fostered economic growth, and resulted in mortgage interest rates so low as to make home ownership more affordable for all classes of Americans. A higher minimum wage will bring on inflationary pressures that will force the Fed into adopting a strategy that deviates from what has been so successful for so long. High inflation, a slowdown in business growth, and less affordable housing are just a few of the consequences that could arise from a forced shift in the Fed’s approach.

Inflation. With grocery stores, retailers, and other companies who employ minimum wage workers being hit with an instant cost increase, what do you think they will do: allow their profits to be eradicated because their labor costs went up? No. They will pass their costs on to the consumer. If minimum wage rises, it is likely that the cost of everything from food to appliances to plumbing services will rise proportionately. So if a minimum wage worker sees his earnings rise to $900 from $800, but also sees his expenses rise to $900 from $800, is there any gain for the minimum wage worker? No. And there is actually a loss of spending power among those who earn more than minimum wage. No individual wins!

Wage Determination. It is not the government that ultimately determines a worker’s wage – it is that worker’s employer. No employer has to pay someone $5.15 an hour. It is within their full authority to pay $6.00 an hour, $7.00 an hour, or whatever they choose based on the value of the work being performed. So, if there is a complaint with pay levels, it should be addressed with the employer, not the government. The nation’s unemployment rate is at its lowest point in five years. There is a high demand for good workers. If one isn’t happy with his wages, there are other jobs available to him. And if a worker is not ambitious enough to pursue better opportunities for himself, I am not sure that he deserves a mandated increase in pay.

The bottom line is that there are many consequences to increasing the minimum wage.

Am I urging Pennsylvanians to take to the streets to protest the minimum wage increase?

No.

But I am urging Pennsylvanians to consider the broader consequences of any legislation before signing any petition. If you understand the consequences and are willing to risk being affected by them, sign away. But don’t support movements without an awareness of how you, Pennsylvania, and America could be negatively impacted by legislation.

So what does this have to do with purchasing, especially if you're in a state other than Pennsylvania?

Well, it is inevitable that residents of other states will cry to their legislators: "Look what Pennsylvania has done! We need a higher minimum wage, too!" So, organizations in every state will be affected eventually.

That means that purchasers in the USA will be outsourcing more and more to low-cost countries. If there was any thought of that trend slowing down, dramatic increases in the minimum wage will only speed up the rate of offshoring. And purchasers can also expect to buy more equipment as employers look for new ways to automate work performed by humans.

Be ready.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Monday, July 03, 2006

Supply Chain Articles

I've begun adding the supply chain articles from PurchTips to my del.icio.us favorites, which you have access to.

I'll soon be offering, either here or through PurchTips, some ways that using my del.icio.us favorites can make it easy for you to find supply chain articles on topics you are interested in. After all, we're up to over 100 editions of PurchTips - as the archives grow, it gets harder to find what you're looking for.

I'm pretty excited about the next edition of PurchTips, due for release on July 11, 2006. I think it is a pretty creative approach and that the article will be posted on supply chain department bulletin boards throughout the world.

Stay tuned.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Saturday, July 01, 2006

Benefits of Six Sigma for the Consumer?

OK, so the missus and I were shopping (again). This time for a new washing machine as ours just stopped working and left us with quarts of water to scoop out by hand.

So, just like we did/do in our corporate purchasing lives, we developed our list of selection criteria: capacity, warranty, features, supplier quality reputation, and price. Warranty is a big one - we don't want to buy the same major appliance every year.

One of the washers we liked was made by GE. GE, of course, is reknowned for its mastery of Six Sigma.

So, the quality is definitely there, right? GE will be able to offer a warranty that blows their competition out of the water, right?

Wrong.

GE's warranty was one year for this higher-end washer. The same as the cheap washers made by the no-name manufacturers.

So does Six Sigma really have benefits for the consumer?

Sure, the Six Sigma quality standard of 3.4 defects per million opportunities sounds great. But what is a defect? Failure within 5 years? Or failure in less than a year?

See, Six Sigma is tricky because there's a lot of latitude in the definition of a defect.

In my opinion, any appliance component that fails within, let's say, 18 months is defective. But it seems like that is not consistent with GE's definition.

A failure in 367 days? That may not count towards the 3.4 defects.

So, in reality, Six Sigma may not guarantee long-term quality.

Now, perhaps GE's components and suppliers are in fact of higher quality than their competitors. But that's not obvious to the consumer with that limp-wristed one-year warranty.

If GE's quality is indeed better, and Six Sigma is a part of that, why not offer the consumer some benefit in the form of a longer warranty? If the product is truly of high quality, they wouldn't have to worry about many warranty claims in months 13-24 right?

Don't they realize how that would differentiate their product in the marketplace?

That would have made our purchase decision so much easier. A two-year warranty vs. a store full of one-year warranties? I'd buy that washer without much thought or comparison.

So if Six Sigma improves quality, why not utilize it to boost the top line in the form of more sales?

Does GE's own marketing team not buy in to the fact that GE has better quality?

And, if they don't, should consumers believe that GE's products are of high quality?

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

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